Western Pacific Insurance Limited (in Liquidation) Report to Creditors dated 7 June 20
Western Pacific Insurance Limited (in Liquidation) Contents Page Introduction and history 2 Business operations 3 Policy cancellations 4 Claims 5 Claims exposure 6 Current funds available 8 Reinsurance arrangements 9 Entitlement to reinsurance proceeds 0 Directors duties Other Matters 2 Appendix A 3 Appendix B 5 Appendix C 6 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 2 Introduction and history On April 20, the Shareholders by Special Resolution appointed David Ian Ruscoe and Simon John Thorn, of Grant Thornton New Zealand Limited, as Joint and Several Liquidators of Western Pacific Insurance Limited (In Liquidation) ( the Company ). At the date of our appointment, the Company operated an insurance business with interests and exposure in New Zealand, Australia and the wider Asia Pacific region. It is understood there is approximately 7000 policy holders in New Zealand alone. The Company s insurance business has exposure to the recent earthquakes in Christchurch and it was determined by the directors that the Company was not in a position to meet such claims. As a result, it was resolved by shareholders that the Company be placed in liquidation. Steps taken following appointment Immediately following our appointment, we determined it necessary to try and protect the ongoing exposure of policy holders while also looking to realise a value from the Company s business to some way bridge the funding gap expected between total claims and available funds. This strategy involved two main parts: Maintaining the operation of the claims department; and 2 Going to market to seek a sale/transfer/assignment of the insurance business. Despite our best efforts and direct contact with numerous local and international insurers, there was no interest in the business as a whole. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 3 Business operations The Company had ceased writing new business and renewals of insurance policies prior to our appointment. We determined it appropriate to retain the Company s claims department as there is a large volume of claims that are yet to be assessed and determined, a lot of which relates to the February earthquake in Christchurch. Reasons for failure Our initial assessment of the Company s affairs indicates a significant lack of capital and an aggressive approach to winning market share may have led to the failure of the Company. It was simply incapable of meeting the claims from Christchurch earthquakes. We have some key preliminary observations in the way the insurance business was structured which if correct, are likely to have contributed to its difficulties. These include: the cost of reinsurance was costly and given the size of this business it amounted to approx 40% of total premium income (reinsurance is where insurers take out insurance policies with specialist insurers to cover certain claims of the Company) coupled with commissions paid to Brokers, which were often between 20% and 25%, the Company only had 40% of its premium income to cover operating costs and meet claims not covered by reinsurance premiums were priced low possibly in an attempt to gain market share and grow the business. However, in some instances the premiums were too low with some policies in Christchurch written at a price significantly lower than what is being offered by other insurers the Company accepted risks outside the scope of its reinsurance policies and chased premium income in numerous countries, including: Australia; Abu Dhabi; Chile; Fiji; Rarotonga; Samoa; Singapore; and Vanuatu. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 4 Policy cancellations With insufficient funds to meet claims arising prior to our appointment, it was not acceptable for us as liquidators to continue receiving premium payments on contracts we were not able to meet should an insurance event occur in the future. It was also important that we advised policy holders that they might not receive payments on policies that they thought were effective. Accordingly we cancelled all contracts on 2 April 20 and advised policyholders to arrange alternative cover. We know this decision has put certain policyholders in a difficult position as alternate cover may not be available but it was essential that everyone was informed that the Company would not be able to meet claims. To help in finding alternative insurance cover we entered into a preferred supplier agreement with Tower Insurance Limited (Tower). Under this agreement Tower agreed to consider offering cover to all New Zealand based policy holders of the Company at current market rates. Normal underwriting criteria will apply. To take up this option please contact Tower on 0800 847 020 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 5 Claims The claims department remains open and claims for losses incurred prior to the cancellation of all policies will need to be assessed in full. If you do have a claim for losses incurred prior to cancellation of your policy please contact our claims department on (09) 365 642 or claims@westernpacins.com to notify them of any potential claim as soon as practical. Claim Assessments The Company used a number of loss adjusters including Cunningham Lindsey and Mclarens Young International to assess claims. We understand that prior to our appointment all loss adjusters ceased to work on assessments due to non payment of their fees. We have met with both Cunningham Lindsey and McLarens Young and are working through arrangements for the assessments to be completed and released to us. After all assessments have been completed, any payments to claimants will need to be made from any reinsurance proceeds received subject to advice from the Court as discussed later in our report. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 6 Claims exposure It is not possible at this stage to know the total claims exposure as a large number of claims relating to the February 20 earthquake are yet to be assessed and some claims may not have been notified yet. To provide a full and proper position in respect of the Company s exposure to claims, it is useful to first understand the total sums insured by the Company. These can be broken down by geographic region and type of cover. Attached at Appendix A is a breakdown of the total sum insured amounts by region. The following is a summary of the property insurances: Canterbury sums insured New Zealand sums insured All Countries Total sums insured Business Interruption Commercial Property House Contents Private Motor IDNZ* Commercial Motor 63,75,647 476,6,729 7,259,647 2,470,879 05,00,42,635 5,8,735 202,860,59,760,973,964 4,522,359 25,842,906 4,07,56 4,0,534 27,936,569 26,043,989,86,574,25 42,627,359 25,842,906 4,07,56 4,0,534 55,265,069 Total sum insured 556,262,273 2,204,354,367 2,346,57,498 *IDNZ is a small business package which covers such businesses as florists, photographers and musicians In addition to the above exposures, the Company has also written casualty insurance, professional indemnity and public and product liability as follows: Professional Indemnity Public Liability New Zealand sums insured 42,470,000 2,97,208,69 All Countries Total sums insured 7,970,000 7,78,38,69 Total sum insured 2,239,678,69 7,890,288,69 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 7 Claims summary There will be a shortfall of funds available for claims. A summary of the claims received to date along with an early estimate of the liabilities in respect of same and an early estimate of reinsurance potentially available is attached at Appendix B. A summary of the estimate claims is set out below. Claims Sept 200 Earthquake Claims Feb 20 Earthquake Other New Zealand claims Australian based claims Pacific and other claims 4,480,643 20,72,088*,00,000 2,863,000 2,3,54 Estimated Total claims 4,88,272 *The figure for claims to date for the Feb 20 Earthquake is a very rough estimate because claims assessments have not progressed very far to date. The liquidators' early estimate of the reinsurance proceeds available to the Company is 32,692,934. A bond of 500,000 will also be available. Depending on court directions, the costs of liquidation may be deducted from these proceeds. Therefore a significant shortfall is expected in the Company's ability to pay out claims. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 8 Current funds available Attached as Appendix C is a copy of a Statement of Affairs constructed from the Company s records and included in our first report filed with the Companies Office. The book value of the Company s assets was recorded at greater than 4.5 million. However, the amount we expect to recover from these assets may only be in the hundreds of thousands rather than millions. The rationale for this assumption is outlined as follows: fixed assets comprise mainly office and computer equipment which is not considered to hold great value unremitted premiums held by brokers may not be fully recoverable eg if they relate to the period after we cancelled insurance contracts investments relate to the interest in subsidiaries in Australia and Hong Kong and the initial indications are that these will have no value 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 9 Reinsurance arrangements The Company has a suite of reinsurance arrangements in place with a panel of reinsurers brokered through Singapore. The key reinsurance arrangements (ie those for the Christchurch earthquakes) only take effect once a loss is greater than 500,000 for a single claim or total claims exceed,000,000 for a catastrophic event, such as the Christchurch earthquakes. As it is critical that the reinsurance arrangements are maintained to ensure a maximum recovery for creditors, we have paid the initial premiums totalling approx NZ430,000 from funding borrowed from banks. We have obtained legal advice on the reinsurance treaties to ascertain whether there was any risk of same being terminated or lost as a result of the Company s insolvency. Following are the key points from the advice: all reinsurance treaties bar one small policy have an insolvency clause which protects the Company even though it is insolvent. after claims have been assessed, even if the Company has not paid out claims the reinsurers will have an obligation to pay the Company. the availability of the reinsurance proceeds for all claimants and the general body of creditors of the Company is uncertain. We are going to seek directions from the Court on this point as set out on the following page. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 0 Entitlement to reinsurance proceeds The question is who is entitled to the reinsurance proceeds? Legal advice we have received indicates that some claimants (those with claims for which reinsurance is available) will be entitled to the reinsurance funds received, but a level of uncertainty about this means that some clarifications from the High Court will be required. If this is correct, this would mean that those of you with claims resulting from the two main Christchurch earthquakes for which reinsurance is available, may have the right to claim against the specific funds received from reinsurers for each earthquake. If this is not correct, all of the reinsurance funds would be available to all the creditors of the Company. Court Directions Due to the uncertainty as to who is entitled to the potential reinsurance proceeds we are seeking directions from the Court to determine who is entitled to the reinsurance proceeds. We are currently compiling the information required to seek directions from the Court and obtain a hearing date. The first part of this will be to seek an order for who is to be notified of the Court hearing and how parties are to be represented in order to ensure all creditors have an ability to have their case argued. Our request for directions will also include a request that our fees, disbursements and expenses (including assessors' costs, reinsurance premiums and our advisers' reasonable costs) can be recovered from the reinsurance proceeds. We will also request that any funder of these costs is repaid from these funds. We expect this process to take up to six months to receive the directions. We know this will be of concern, however there is no other way of ensuring creditors are all treated fairly. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) Directors duties The Companies Act 993 puts certain performance obligations on the Directors when running a company including to act in what they believe to be the best interests of the Company. We are reviewing the actions of the Directors to ascertain whether there are any actions available to us to recover funds for creditors. These actions can include claims for reckless trading, entering into transactions when insolvent and certain voidable preference payments. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 2 Other Matters Next report We expect to provide you with a further report at the end of July 20. Contact details Please forward general enquiries to westernpac@nz.gt.com and we will respond as soon as possible. For any claims enquiries please call (09) 365 642 or forward to claims@westernpacins.com. To contact Tower to take up their insurance offer please contact Tower on 0800 847 020. Further information Further information including correspondence to date and frequently asked questions will be available on our website www.grantthornton.co.nz shortly. Disclaimer The statements and opinions expressed in this report have been made in good faith, and on the basis that all information that we have relied upon is true and accurate in all material respects. In preparing this report we have relied upon, and have not necessarily independently verified, the information and explanations provided to us and we express no opinion as to the accuracy or completeness of that information, other than to note that our investigations are ongoing. The contents of this report are based on the information available to us at the date of this report. If we become aware of any additional information not known to us at the date of this report, we reserve the right, but shall not be obliged to, review or update this report. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 3 Appendix A WPIL - Property - Cresta Zone LIVE at 05/04/20 - Converted to NZD Business Interruption Commercial Motor Commercial Property Contents House IDNZ Private Motor Total Sum Insured Total Policy Count State Cresta No. Sum Insured Sum Insured Sum Insured Sum Insured Sum Insured Sum Insured Sum Insured NZ 0 - Anywhere in New Zealand 650,000 220,720,502,500 65,000 352,892 72,885 3,62,997 377 - Northland,424,920 273,300 29,337,597 487,390 3,895,575 55,500 24,000 35,498,282 258 2 - Auckland 46,025,440 7,023,006 403,903,35 5,594,392 8,07,59 27,240,059 2,77,040 583,574,843 3,324 3 - Waikato 7,605,790 2,002,736 23,979,96,755,25 5,89,585 42,973 5,000 50,727,70 789 4 - Bay of Plenty 2,222,000 585,290 83,854,875,482,649 0,33,035 85,898 205,990 98,669,737 670 5 - Taranaki,86,594 43,000 4,4,000 36,000 544,500 8,500 6,699,594 32 6 - East Coast 75,000 6,000 5,008,900 50,000 2,038,500-7,78,400 54 7 - Manawatu 25,073,320,60,25 03,328,976 34,284 20,000 2,000 29,935,83 50 8 - Hawkes Bay 2,77,8 649,449 73,453,497 49,600 2,533,000 37,000 2,000 79,363,357 324 9 - Wairarapa 2,807,978 674,979 40,98,622 20,000,000,000 27,000 45,448,579 390 0 - Wellington 7,68,55 689,895 29,879,929 885,00 3,725,375 2,889,789 04,500 55,793,03,565 - Nelson 5,979,800,20,725 73,27,4 393,585,739,300 265,000 3,00 82,656,624 798 2 - Marlborough 43,475 2,696,975 60,000 72,00 0,000 3,622,45 20 3 - Canterbury 63,75,647 5,8,735 476,6,729 2,470,879 7,259,647,42,635 05,00 556,262,273,996 4 - Westland 42,000 0,000 6,20,000 60,000 468,000 6,700,000 43 5 - Otago 22,708,04 4,896,727 50,944,285,422,00 9,36,466 5,480,288 64,000 94,876,907 2,755 6 - Southland 2,874,88 3,398,756 32,659,690 434,086 2,344,500 2,000,000 23,000 43,734,220 486 NZ Total 202,860,59 27,936,569,760,973,965 25,842,906 4,522,359 4,0,534 4,07,56 2,204,354,368 4,67 AUS 2,783,47 27,285,000 96,285,6,05,000 37,458,63 208 ABU DHABI 800,000 800,000 2 CHILE,235,000,235,000 3 RAROTONGA 400,000 43,500,680,000 2,23,500 5 SINGAPORE 600,000 600,000 Grand Total 26,043,990 55,265,069,86,574,25 25,842,906 42,627,359 4,0,534 4,07,56 2,346,57,499 4,890 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 4 WPIL - Casualty - Value Band LIVE at 23/03/20 - Original Currencies Category Currency Country Value Band Sum Insured Policy Count PI NZD NZ 0-250k 970,000 27 250-500k 2,000,000 6 500k-m 2,000,000 2-2m 3,500,000 5 4-5m 5,000,000 NZ Total 42,470,000 7 SAMOA 250-500k 500,000 SAMOA Total 500,000 NZD Total 42,970,000 72 AUD AUS 250-500k,000,000 2 500k-m 2,000,000 2-2m 22,000,000 2 2-4m 4,000,000 5 4-5m 30,000,000 2 7.5-0m 50,000,000 7 >5m - 2 AUS Total 9,000,000 52 VANUATU 500k-m,000,000 VANUATU Total,000,000 AUD Total 20,000,000 53 USD SAIPAN 7.5-0m 9,000,000 SAIPAN Total 9,000,000 USD Total 9,000,000 PI Total 7,970,000 226 PL NZD NZ 0-250k 2,04,69 36 250-500k 2,692,000 85 500k-m 549,845,000 320-2m 776,97,000 400 2-4m 09,20,000 72 4-5m 425,000,000 398 5-7.5m 23,250,000 7 7.5-0m 220,000,000 65 >5m 7,000,000 7 NZ Total 2,89,208,69 3590 AUS -2m 2,000,000 AUS Total 2,000,000 CHILE -2m 2,000,000 CHILE Total 2,000,000 RAROTONGA 500k-m,000,000 RAROTONGA Total,000,000 SINGAPORE -2m 2,000,000 SINGAPORE Total 2,000,000 VANUATU 500k-m,000,000 VANUATU Total,000,000 NZD Total 2,97,208,69 3595 AUD AUS 0-250k 0,000 2 500k-m 7,000,000 0-2m - 2 4-5m 35,000,000 89 7.5-0m 3,030,000,000 395 >5m 2,20,000,000 47 AUS Total 5,472,0,000 645 JAPAN >5m 20,000,000 JAPAN Total 20,000,000 SINGAPORE, KL,HK 7.5-0m 0,000,000 SINGAPORE, KL,HK Total 0,000,000 VANUATU 500k-m - 2-2m 2,000,000 3 4-5m 5,000,000 7.5-0m 0,000,000 VANUATU Total 7,000,000 7 AUD Total 5,59,0,000 654 USD FRENCH POLYNESIA -2m 2,000,000 FRENCH POLYNESIA Total 2,000,000 USD Total 2,000,000 PL Total 7,78,38,69 4250 Grand Total 7,890,288,69 4476 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 5 Appendix B Western Pacific Insurance Limited (in Liquidation) Outstanding Claims Country Class of Insurance Claims Estimate Reinsurance initial estimate of Recovery Reinsurance Deductible Extent claims estimate not covered by reinsurance New Zealand New Zealand Material Damage and Business Interruption (EQ Sept 200) Material Damage and Business Interruption (EQ Feb 20) 4,480,643 3,480,643,000,000,000,000 20,72,088* 8,500,000,000,000 2,22,088 Australia Material Damage 52,000 52,000 Australia Casualty 2,8,000 2,8,000 New Zealand Domestic (House and 90,000 45,000 45,000 Contents) New Zealand Motor 3,000 7,750 23,250 Samoa Material Damage (Fire) 7,000 7,000 Fiji Material Damage,659,54 Potentially 659,54 (may be offset against unpaid resinsurance premiums),000,000 At least,000,000 New Zealand Motor 390,000 390,000 New Zealand Casualty 53,000 53,000 New Zealand Material Damage and Business Interruption (excluding EQ Losses) 446,000 446,000 Pacific 337,000 337,000 4,88,272 32,692,934 3,000,000 8,495,338 *The figure for claims to date for the Feb 20 Earthquake is a very rough estimate because claims assessments have not progressed very far to date. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 6 Appendix C as at the date of the appointment of Liquidators Western Pacific Insurance Limited (In Liquidation) being April 20 Book Estimate Value Realisation Notes Assets not specifically charged Cash at Bank 99,92 99,92 Fixed Assets (at 30 June 200) 457,593 unknown Premiums held by brokers 2,604,865 unknown 2 Funds held by reinsurer's broker 257,280 257,280 3 Other reinsurance proceeds unknown unknown 4 Government Bond 500,000 500,000 5 Investments 560,332 unknown 6 GST Refund 3,890 unknown Less: Preferential Creditors (estimated at date of Report) Employees 4,522 4,522 Inland Revenue Department 20,440 unknown Assets subject to security interests including, debentures General Security Agreement's, mortgages unknown unknown hire purchase agreements Estimated Assets Available To Unsecured Creditors unknown Unsecured creditors 3,88,537 7 Unsettled Claims,952,735 7 Estimated Surplus/(Deficit) (Subject to the costs of liquidation) unknown The Company does not maintain its own accounting records. They are looked after by an external party. At the time of producing this report, the Liquidators are unsure as to how up to date the information provided is. Notes. The fixed assets are comprised of motor vehicles, office furniture and IT Equipment. These items are in the process of being valued. 2. Records indicate unremitted premiums are held by Brokers 3. It is understood these funds have been released by the Reinsurers and are held by the reinsurance Broker in Singapore 4. It is expected the reinsurance arrangements will provide funds to meet the many claims yet to be assessed and determined 5. This is a security bond held by The Public Trust for the benefit of insured claimants in the event the company is unable to satisfy claims 6. These investments relate to various related parties including subsidiaries in Australia and Hong Kong 7. It is expected the claims and creditor amounts will increase as insurance claims following the recent Earthquakes are assessed. 20 Grant Thornton New Zealand Ltd. All rights reserved.
Western Pacific Insurance Limited (in Liquidation) 7 Grant Thornton New Zealand Ltd is a member firm within Grant Thornton International Ltd (Grant Thornton International). Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered by the member firms.